Final Results

RNS Number : 1901O

Renold PLC

26 May 2015

 

Renold plc

("Renold" or the "Group")

Preliminary results for the year ended 31 March 2015

Transition to Growth Phase

Renold, a leading international supplier of industrial chains and related power transmission products, today announces its preliminary results for the year ended 31 March 2015, together with an update on the progress of the Group's Strategic Plan.

Performance highlights

·    Adjusted earnings per share increased 56% to 5.0 pence, following prior year growth of 129%

·    Underlying adjusted operating profit increased 48% to £15.5m, ahead of market expectations

·    Chain division delivered full year RoS% over target threshold of 10.0%

·    Business transitioning into growth phase with 2.0% growth in underlying revenue

·    Free cash generation of £5.3m breaks long record of organic cash consumption

·    Significant pensions de-risking project completed in April 2015

·    Earnings enhancing revision to core banking relationship completed in May 2015 with flexibility to support future investment plans and potential bolt on acquisitions

Financial Summary	Year ended 31 March
	2015		2014
	£m		£m
Underlying[1] revenue	181.4		177.9
Adjusted[2] operating profit as reported	15.5		11.1
Operating profit/(loss) post exceptional items	12.1		(1.3)
Profit/(loss) before tax	7.7		(5.9)
Basic earnings/(loss) per share	2.5p		(4.9)p
Adjusted earnings per share	5.0p		3.2p

Robert Purcell, Chief Executive of Renold plc, said:

"We have made strong gains across a wide range of our key performance indicators. We delivered a second consecutive year of significant growth in earnings per share, with the Chain division surpassing its target threshold RoS of 10.0% being a major factor in pushing forward Group profit margins. We also put in place some longer term initiatives to secure a financing arrangement that supports the current Growth and future Acquisition phases of our Strategic Plan and successfully completed a de-risking project for a significant proportion of UK pensioner liabilities just after the year end.

We are now focusing on our new target of achieving operating margins in the mid-teens by 2020 whilst delivering steady and continuous improvements in earnings per share."

26 May 2015

ENQUIRIES:                                                                                                                                         

Renold plc	Tel: [phone]
Robert Purcell, Chief Executive
Brian Tenner, Group Finance Director
Arden Partners (Broker)	Tel: [phone]
Chris Hardie
Instinctif Partners (Public Relations)	Tel: [phone]
Mark Garraway Helen Tarbet
James Gray

NOTES FOR EDITORS

Renold is a global leader in the manufacture of industrial chains and also manufactures a range of torque transmission products which are sold throughout the world to a broad range of original equipment manufacturers and distributors. The Company has a reputation for quality that is recognised worldwide. Its products are used in a wide variety of industries including manufacturing, transportation, energy, metals and mining.

Further information about Renold can be found on their website at: www.renold.com

 

Chairman's statement

The Group has delivered a second consecutive year of significantly improved margins and earnings growth. We continue to build and develop our three-phase Plan to deliver mid-teens operating margins by 2020. The new five year financing facility with access to additional funds positions us well for the next phases of our strategy.

Overview

The past year has been marked by a number of notable successes. We delivered a significant reduction in our breakeven point when we completed the closure of the Bredbury chain facility under budget and ahead of schedule in the first quarter. During the first half we also developed a series of five year action plans in each unit to advance the first two phases of our Strategic Plan. That plan is now being further developed and communicated to all of our stakeholders under the banner 'STEP 2020'. These actions are the multiple individual steps that build to deliver our overall strategic goal of mid-teens operating margins by 2020.

 

Re-engineering our future

The successful delivery of the project to close the Bredbury manufacturing facility and transfer the production to three other sister sites was only one aspect of the many self-help initiatives delivered by the Group during the year. Most recently we have also announced that we are moving our head office to new local premises in Manchester which are more suited to the size of our business today, are a better reflection of the culture that we are seeking, and also reduce our fixed overhead base.

Elsewhere, we continue to develop and enhance our senior management team with recruitment to a number of posts that will support the business as it makes the transition into the second phase of the Strategic Plan, the Growth phase. We continue to work hard to improve our health and safety culture and performance and while this year has seen some disappointment in the accident statistics, we are confident that the continued drive to embed a 'safety first' culture will pay dividends in the long term.

 

Our Balance Sheet

The amendment and extension to our core banking facilities that was completed in May 2015, just after the end of the financial year, put in place an important foundation for the next phases of our Strategic Plan. The revised facilities give access to longer term financing that matures in 2020, a flexible £20.0m accordion facility that can be used for major investments or strategically aligned opportunistic bolt-on acquisitions, and also provide a lower cost of financing the Group's net debt.

De-risking our exposure to defined benefit pension schemes remains a key priority. During the year, one scheme in the USA was terminated at minimal cost to the Group. Just after the year end we announced an insured buy in of 25% of the higher risk pension liabilities and cash flows in the UK.

The Group is currently evaluating the potential impact of the recent changes in UK legislation on flexible retirement planning which may allow for further de-risking while allowing the members of the UK scheme access to the flexibility introduced by the Government. De-risking projects continue to be assessed in various territories with open defined benefit pension schemes.

Positive outcomes were also delivered in net debt and working capital. As a result of strong operating cash flows, the Group finished the year with net debt £5.3m lower than the same time last year.

 

The Board and Our People

The Board continues to support the Executive team in reviewing and monitoring our continuous improvement initiatives. All Board members have given additional time and support on a wide range of issues during the year. The Board remains closely involved in the governance of the major projects and further evolution of the Strategic Plan.

In parallel with developing the detailed five year plan, we are also working to develop and embed a new Group culture that will support our change initiatives. The 'Renold Values' have been rolled out across all of our business units this year and aim to set standards of behaviour and expectations for all of our employees that will shape and inform the manner in which we implement our Strategic Plan.

I am grateful for the continued efforts and new ideas that our staff bring to the table in support of our Strategic Plan. The pace of change remains unremitting and it is truly heartening to see the commitment of all of our employees in making those changes a success. Through our Values and regular communication with employees we aim to ensure that all staff are able to contribute and remain fully engaged, motivated and inspired.

Dividend

The Group has an extensive series of planned capital investments in the new financial year and capital investment will increase significantly as a result. The new investments are aimed primarily at further improving our performance and supporting the delivery of our strategic objectives. Given these planned investments, the Board has decided not to recommend the payment of a dividend in the current financial year. The Board does however recognise the importance of dividends to shareholders and this will remain under active review as performance improves further.

Outlook

Our efforts remain focused on self-help initiatives. We have identified a wealth of internal improvement and growth initiatives in our detailed strategic planning process. These serve as a reminder that there remains significant opportunity and scope for continuous improvement. We will continue our efforts to create and embed a continuous improvement philosophy in all aspects of our business, whether front line sales and service, manufacturing processes or support functions.

Externally, most of our end markets are more stable than would be suggested by the extreme volatility in the capital and foreign currency markets. The combination of these market conditions with our self-help initiatives gives confidence that, as we transition into the Growth phase of our Strategic Plan, we are well placed to continue to deliver sustainable longer term gains in adjusted operating profit and earnings per share.

Achievement of double digit operating margins is fast becoming a realistic short term opportunity as both operating divisions already achieve this before head office costs. Robust foundations for further improvements have already been put in place over the last year and we expect to accelerate our capital investment programme over the coming year. The STEP 2020 programme has a medium term goal of delivering mid-teens operating margins by 2020.

Mark Harper

Chairman

 

Chief Executive's Review

Our performance

We continue to build sustainable momentum in driving the business forward. We delivered a 48% increase in underlying adjusted operating profit and a 56% increase in adjusted earnings per share underpinned by Chain achieving its 10% RoS threshold target. The generation of £5.3m of free cash flow from organic activities represents a significant step change from over a decade of organic cash consumption.

Executive summary

The year was marked by a number of further self-help successes building on the significant achievements of last year. As a result, we have delivered a 48% increase in underlying adjusted operating profit against a background of mixed macro-economic conditions in our operating geographies.

Underlying revenue increased by 2.0% for the Group as a whole. In Chain, Europe, the Americas, China and India all delivered growth while underlying Australasian revenues were marginally down by 0.1%. The weak commodity dependent Australian market was almost entirely offset by strong growth in South East Asia.

In Torque Transmission underlying revenue fell 1.1% although the second half was more encouraging with a small rise of 2.0%. Torque Transmission also contributed to lowering our breakeven point by cutting overheads by £0.8m.

The complex project to reduce excess capacity in our Chain division saw completion of the closure of the Bredbury facility soon after the end of the last financial year. We successfully moved the production with a minimum of disruption for our customers and exceeded our business retention target of 90%. Offsetting this gain were additional transitional costs incurred in recipient sites for Bredbury production. In order to minimise disruption to customers, we incurred excess labour and freight costs which more than offset the gains from retaining the majority of our revenue. The excess costs were managed out of the business in the second half of the year and so we expect the lasting annual gains from the closure project to be approximately £3.8m, some £0.6m better than our original estimate.

Our Strategic Plan, STEP 2020, has been developed to take us through the next five years.  STEP 2020, with its detailed unit specific self-help and growth initiatives will deliver sustainable margin gains as we move to deliver our new medium term goal of mid-teens operating margins by 2020.

In summary, adjusted operating profits are now 133% higher than two years ago when we started to implement our three-phase Plan. Adjusted earnings per share have more than trebled over the same period.  This clearly emphasises the value generation that is available through our self-help measures. 

Renold Chain performance review

Underlying external revenue of £138.3m was 3% ahead of the prior year. The regional picture was more mixed and reflected differences in local macro-economic conditions. Our largest region of Europe delivered growth of 4.5% with the three major territories of Germany, the UK and France all being up on the prior year while Switzerland had a particularly strong year on the back of a one-off major project win. The Americas and India delivered good growth of 1.3% and 10.3% respectively. Underlying revenue in Australasia was broadly flat (down 0.1%) with the 7.3% fall in Australia almost being offset by growth in South East Asia. The regional result was a significant improvement on the 7.4% fall in the prior year though Australia itself remains challenging (down 7.3% compared to 15.2% in the prior year). Our Chinese Chain business focuses on supporting other Group companies and its own direct external sales saw small but positive growth of 8.9%.

Underlying order intake grew by 2.7% almost matching the growth in sales. At a regional level, European underlying order intake was up 1.5% and in the Americas it was up 3.1%. Overall order intake in Australasia was up 3.5% though again Australia itself was weaker, down by 6.7%. The smaller regions of China and India, in terms of externally focused activity, both delivered order intake growth. The profile of our order intake (and hence our revenue profile) continues to be more stable with less reliance being placed on large one off orders which can have an adverse impact by disrupting our production processes.

Contribution margins, the margin after all variable production costs, improved during the year. Direct labour costs were favourable to the prior year by 0.4% of revenue. This figure would have been better still had it not been for additional temporary activity undertaken during the transfer of production from the Bredbury facility to sister sites where extra labour and labour inefficiencies were treated as normal operating costs. Now that the recipient sites have fully absorbed the Bredbury production load, a key task will be to deliver a second phase of operational efficiencies that will flow from the operating leverage at those sites.

Underlying net overheads were reduced by £2.3m in the year. The overall gains in the year were part of the global effort to streamline our processes and structures and are part of our continuous improvement effort.

As a result of continuing reductions in overheads and measures to improve our contribution margins, underlying adjusted operating profit rose 53% to £14.2m (2014: £9.3m), delivering a Return on Sales of 10.3% (2014: 6.9%). With the exception of Australasia, three of the five Chain regions delivered a double digit Return on Sales with Europe seeing significant benefit from the Bredbury closure. Margins in the Americas suffered slightly, though still double digit, due to the excess operating costs incurred in absorbing Bredbury production transfers. Australia continued to face the additional challenge of continuing weakness in the foreign exchange rate for the Australian dollar which made Chinese imports 18% more expensive by the year end. This currency change is inevitably having an inflationary impact on input costs which we have taken action to recover with a combination of price rises and overhead reductions.

Performance improvement projects

We reported last year on the closure of the Bredbury Chain manufacturing facility and transfer of production to sister facilities around the world, which was completed ahead of target in May 2014. The first half of this financial year involved considerable work to embed the new production capabilities into routine operations at the recipient sites, and normalise the manufacture of their extended product ranges. Inevitably this brought a number of challenges and there was some disruption to supply from the Einbeck and Morristown sites, resulting in additional overtime and freight charges. These issues were fully resolved before the year end and we are seeing initial progress in the second phase of the project, targeting efficiency gains in the production of the transferred products.

Rationalisation of the manufacturing sites has been followed by a series of projects targeting improvements in Customer Service. A successful pilot programme in the UK that has been delivering configured transmission chain in market-leading response times has been expanded to other parts of Europe and is expected to roll out across all EU territories towards the end of this year. The service will also be expanded to cover a wider product range in the second half of the new year.

 

Preparing for growth

In Europe, new sales offices have been opened in Denmark and Belgium to improve support to the local markets, with a very positive response from local customers. Further locations are due to be opened during the next 18 months. In France we have separated the activities of the Chain and TT divisions, to provide clearer focus on each sector.

These are a few of the initiatives already delivered or underway to support the Group's transition to Phase 2 of our Strategic Plan, the Growth phase.

Renold Torque Transmission performance review

Underlying external revenue of £43.1m was 1.1% below the prior year which itself had seen a fall of 5.8%. Underlying revenue, after excluding a low margin mass transit contract that ended in Q1 of the prior year, grew by 1.3%.

Order intake was weak and down 7.8%, primarily as a result of lower demand for gear products sourced from the UK. This was in part due to the Chinese business, primarily in the coal fired power station sector, being slower than the prior year. Work is ongoing to better understand the power generation sector to identify other uses to which our products are well suited. Successful contract wins for escalator drives in Europe and USA partly offset the reduced Chinese orders.

Recent restructuring activity brought more product focus through the appointment of leaders responsible for the Couplings and the Gears product ranges. This has in turn started to deliver new products such as a new high precision adjustable gear mechanism used for positioning equipment, launched in February 2015. We are also delivering new services such as same day despatch for industrial coupling products. This will translate into further revenue growth next year.

Contribution margins, the margin after all variable production costs, improved during the year. In part this was the result of the lower margin mass transit contract previously mentioned, that came to an end during the previous year, but it was also supported by focusing more sales effort on the higher performance products in the portfolio. Continuous improvement activities in the factories also contributed to the margin gains with labour and material cost ratios positive compared to the prior year. Further benefits will be achieved as we implement more efficient manufacturing processes using new plant and equipment.

The businesses that make up Torque Transmission are continually challenging themselves to find better ways of working by simplifying processes and cutting out waste in every form. This has resulted in underlying net overheads in the division reducing for the second consecutive year with £0.8m savings as a result of a number of initiatives in each location rather than one major restructuring project.

The combination of the gains in contribution margins and ongoing overhead reductions led to an increase in the adjusted operating profit from 13.3% to 16.0%. The absolute level of adjusted operating profit also rose by £1.1m to £6.9m. This was achieved despite the fall in underlying external revenue. Operating margin gains were delivered in five of the seven units, with only the UK gear business being down year on year.

At the start of the year only one business unit in the division had implemented the Health and Safety standard OHSAS 18001. During the year a further five units implemented the standard with the remaining business expected to complete next year.

The divisional management team continued to be enhanced during the year. Key changes included a new divisional Finance Director and, as previously mentioned, new leaders appointed for the Couplings and Gears businesses. Both businesses are engaged in change programmes which will impact positively on every part of their operation. The new leadership is tasked with continuing to improve business efficiency and deliver growth within the framework of STEP 2020. Our ongoing commitment to invest in development of new products and processes using the latest manufacturing technology in all of Torque Transmission's facilities will continue to provide solutions with lasting benefits for Renold and our customers.

Robert Purcell

Chief Executive

 

Finance Director's review

A fourth consecutive half year of incremental profit growth underpinned the new five year financing structure completed with our current banking partners. This immediately lowers our interest costs and includes new flexibility to support the Group's investment goals in the Growth phase of the Strategic Plan as well as providing the capacity to fund potential acquisitions.

Overview

We continue to deliver steady incremental improvements in profitability, margins and earnings per share. This has been achieved in parallel with the successful delivery of a number of the key projects and continuous improvement initiatives that underpin our Strategic Plan. At the same time, work continues to strengthen our balance sheet and improve cash generation that will fund our investment programme and in turn support further margin growth.

Orders and revenue

Order intake during the year in the Chain division grew at a similar rate to the growth in revenue with the underlying ratio of orders to revenue (book to bill) being 100.1% (2014: 100.4%). Four out of five Chain regions showed growth in underlying external order intake with only China showing a small £0.3m decline. In Torque Transmission weaker demand for gear boxes in the Chinese domestic power generation sector was the key driver for a year on year fall in order intake of £3.4m. This resulted in a book to bill ratio of 91.5%. The results for the Chain and Torque Transmission divisions are set out in more detail in Note 2 below.

Group revenue for the year decreased by 1.4% to £181.4m (2014: 3.3% decrease). On an underlying basis, excluding the impact of foreign exchange, revenue actually grew by 2.0% or £3.6m in absolute terms (2014 1.6% decrease, £2.9m in absolute terms). Some momentum built in the second half with the period being up 2.4% compared to the prior year and a first half increase of 1.6%.

The Chain division was responsible for the overall growth in Group revenue with the division delivering underlying growth of 3.0%. Torque Transmission saw a modest fall in underlying revenue of 1.1%, representing an improvement on the previous year's decrease of 5.8%.

Operating result

		2015		2014
	Order intake £m	Revenue £m	Operating profit £m	Order intake £m	Revenue £m	Operating profit/(loss) £m
As reported	177.9	181.4	12.1	183.7	184.0	(1.3)
Impact of FX translation	-	-	-	(6.0)	(6.1)	(0.6)
Exceptional items	-	-	2.9	-	-	11.8
Pension administration costs	-	-	0.5	-	-	0.6
Underlying/adjusted	177.9	181.4	15.5	177.7	177.9	10.5

The Group generated £7.5m of adjusted operating profit in the first half (2014: £5.1m) and £8.0m in the second half (2014: £6.0m) with a full year result of £15.5m (2014:  £11.1m). The second half result was achieved on 1.7% (£1.6m) lower underlying revenue than the first half. This reflects our continuing drive to improve margins and reduce our costs as we continue to lower our breakeven point. It also reflects certain excess operating costs incurred in the first half following the closure of the Bredbury facility. These costs were reduced in the second half and largely eliminated by the end of the year.

Trends in Adjusted Operating Profit and RoS

Foreign exchange rates have been extremely volatile during the year. The Group's diverse operating territories and currencies provided a natural hedge during the year with Euro weakness almost fully offset by US$ strength. The net impact of this volatility was an operating income of £0.2m in the year (2014: £0.4m charge). All else being equal, there would be an estimated increase of £0.5m operating profit if the year end exchange rates applied throughout the year.

Exceptional items

The exceptional charges of £2.9m were much reduced on the prior year (2014: £11.8m). A £1.2m impairment charge has been booked against a surplus property in Calais where a depressed local economy and weak property market are hampering the Group's ability to realise value from the site. It has therefore been written down to a nil net book value, which reflects potential clean up costs in the event of a sale. A £0.5m charge arose to increase the Bredbury factory onerous lease provision as a result of a change in the interest rate assumption used when discounting future obligations. The remaining charges are detailed further in Note 3 below.

Financing costs

External net interest costs in the year were £1.7m (2014: £1.8m). The annual charge includes £0.3m in respect of amortisation of the refinancing costs paid in 2012 which were being expensed over the four year term of the facility. Financing costs also include £0.2m of the impact of unwinding discounts on onerous lease provisions established in the prior year (the Bredbury factory onerous lease provision).

The new facility terms that were agreed in May 2015, just after the end of the current financial year (see Note 9), include lower interest rates and were delivered at a lower one off cost of re-financing than previously. The annual amortisation charge is therefore also expected to fall by £0.1m to £0.2m p.a. as the costs are amortised over the remaining five year term of the facility.

Net IAS 19 finance charges (which are a non-cash item) were £2.5m (2014: £2.8m), the net movement being due to lower interest rates on a higher opening liability figure. In the current year, the actual return on assets was £13.7m higher than the return used in the interest calculation as specified in IAS 19. The difference appears as a remeasurement gain in the asset section.

Result before tax

Profit before tax was £7.7m (2014: loss of £5.9m). The profit before tax and exceptional items was £10.6m (2014: £5.9m).

Taxation

The current year tax charge of £2.1m (2014: tax charge of £4.8m) is made up of a current tax charge of £1.4m (2014: charge of £1.2m) and a deferred tax charge of £0.7m (2014: charge of £3.6m). The Group cash tax paid was much lower at £1.4m (2014: £0.9m) and the difference is due to the utilisation of tax losses and other tax assets in various parts of the Group.

Group results for the financial period

Profit for the financial year ended 31 March 2015 was £5.6m (2014: loss of £10.7m) and the basic and diluted earnings per share was 2.5p for both (2014: loss 4.9p for both). The basic and diluted adjusted earnings per share was 5.0p for both (2014: earnings 3.2p for both).

Balance sheet

Net assets at 31 March 2015 were £11.6m (2014: £13.9m restated). The fall was driven by the increase in the present value of pension liabilities as a result of falling yields on government and corporate bonds.

The net liability for pension benefit obligations was £61.2m (2014: £53.5m restated) after allowing for a net deferred tax asset of £14.5m (2014: £11.4m). Overseas schemes now account for £25.3m (41%) of the post tax pension deficits and £21.5m of this is in respect of the German scheme which is not required to be prefunded.

Following the year end review of deferred tax in respect of the German pension deficit, it was identified that the prior year asset was overstated by £4.2m. The Balance Sheet and Statement of Other Comprehensive Income have been restated with the correct balance. The restatement has had no impact on the prior year or current year profitability or earnings per share. Further detail is set out in the Accounting Policies.

Cash flow and borrowings

Cash generated from operations was £12.8m (2014: £6.1m). Capital expenditure was marginally down in the year at £5.5m (2014: £7.1m). Following the closure of the Bredbury facility and the transfer of production to sister plants, those recipient plants were focused on absorbing the transferred production into their day to day operations. As a result, capital expenditure in the year was lower than previously anticipated. Capital expenditure in the new financial year is expected to exceed £10.0m with a number of major projects already committed as at the date of this report. Further gains were made in working capital management with reductions equivalent to £1.4m.

Group net borrowings at 31 March 2015 of £19.5m were £5.3m lower than the opening position of £24.8m comprising cash and cash equivalents of £12.6m (2014: £6.7m) and borrowings (which include £0.5m of preference stock) of £32.1m (2014: £31.5m).

Debt facility and capital structure

Towards the end of the current financial year the Group decided to ask our current banking partners, Lloyds Bank plc and Svenska Handelsbanken AB, to amend and extend the terms of the Group's primary banking facility which was due to mature in October 2016. The decision to offer the financing to our current banks only was based on our desire to build a long-term relationship with our banking partners who have been very supportive during the first two years of our Strategic Plan. We maintained a firm view on market pricing through independent advice from Rothschild. The process to amend and extend the facility completed in May 2015.

The amended facility comprises an unchanged committed £41m Multi-Currency Revolving Credit Facility (MRCF), but now also includes a £20.0m accordion feature. This can be used in the event of a significant investment or acquisition opportunity. In the short term, any such acquisition would be likely to be opportunistic in nature. However, given that the amended facility has a five year term (matures in May 2020), the facility will also be available at a time when the Group is likely to enter the third phase of our Strategic Plan, the Acquisition phase.

The amended facility has also taken advantage of lower interest rates in the corporate banking market which will have an immediate positive impact on our financing costs in the first half of the new financial year. The process to amend and extend the existing facility was significantly faster, cheaper and less demanding on management time than a full scale competitive banking re-financing exercise. The Group saved approximately £0.7m in one off costs compared to the re-financing exercise in 2012.

The principal covenants remain unchanged, being the Net Debt/Adjusted EBITDA ratio (calculated on a rolling 12 months basis), which remains at a maximum of 2.5 times until maturity, and minimum Adjusted EBITDA/Interest cover which is also unchanged at 4.0 times until maturity. The Net Debt/Adjusted EBITDA ratio as at 31 March 2015 is 0.9 times (2014: 1.5 times), based on the period end net debt of £19.5m (2014: net debt £24.8m). The Adjusted EBITDA/interest cover as at 31 March 2015 is 12.1 times (2014: 8.7 times).

At 31 March 2015, the Group had unused credit facilities totalling £10.6m and cash balances of £12.6m. Total Group credit facilities amounted to £42.6m with £41.0m being committed.

Treasury and financial instruments

The Group's treasury policy, approved by the Directors, is to manage its funding requirements and treasury risks without undertaking any speculative risks. Treasury and financing matters are assessed further in the section on Principal risks and uncertainties.

To manage foreign currency exchange risk on the translation of net investments, certain US Dollar denominated borrowings taken out in the UK to finance US acquisitions had been designated as a hedge of the net investment in US subsidiaries.  At 31 March 2015 this hedge was fully effective. The carrying value of these borrowings at 31 March 2015 was £5.8m (2014: £5.2m).

At 31 March 2015, the Group had 2% (2014: 2%) of its gross debt at fixed interest rates. Cash deposits are placed short term with banks where security and liquidity are the primary objectives. The Group has no significant concentrations of credit risk with sales made to a wide spread of customers, industries and geographies. Policies are in place to ensure that credit risk on individual customers is kept to a minimum.

Pensions assets and liabilities

The Group's retirement benefit obligations increased from £64.9m (£53.5m net of deferred tax) at 31 March 2014 to £75.7m (£61.2m net of deferred tax) at 31 March 2015. The main reason for the change was the sharp decline in UK corporate bond yields. This was accompanied by a sharp decline in European interest rates following the launch of Quantitative Easing by the European Central Bank. It is important to note that the change in discount rates used to value the schemes' liabilities balance has no impact on the cash contributions paid to the schemes and these remain stable.

One of the Group's US pension schemes had all of its members benefits paid out and the scheme is now in wind up having moved into surplus during the prior year.

The aggregate expense of administering the pension schemes was £0.5m (2014: £0.6m) and is now included in operating costs but is excluded in arriving at adjusted operating profit.

UK pension schemes merger and asset backed funding structure

The previous three UK defined benefit pension schemes were merged into the Renold Supplementary Pensions Scheme (subsequently renamed the Renold Pension Scheme 'RPS') on 26 June 2013. At that time, 1,316 members took wind-up lump sums to the value of £10.4m and, as a result, a small settlement gain of £0.5m was recognised. The remaining assets of the Renold Group Pension Scheme and J&S Retirement Benefit Plan were transferred into the RPS and full wind-up of those schemes was triggered on 27 June 2014. The merged scheme had 3,502 members as at 31 March 2015 compared to 3,635 at the start of the year.

The most recent triennial actuarial valuation of the RPS was completed with an effective date of 5 April 2013 and no additional contributions in excess of those generated by the asset backed funding structure were deemed necessary. The next triennial valuation will take place with an effective date of 5 April 2016.

The Group has a mix of UK (82% of gross liabilities) and overseas (18%) defined benefit pension obligations.

		2015		2014 restated
	Assets £m	Liabilities £m	Deficit £m	Assets £m	Liabilities £m	Deficit £m
Defined benefit schemes
UK funded	156.6	(201.5)	(44.9)	144.9	(183.0)	(38.1)
Overseas funded	14.7	(19.5)	(4.8)	14.1	(17.3)	(3.2)
Overseas unfunded	-	(26.0)	(26.0)	-	(23.6)	(23.6)
	171.3	(247.0)	(75.7)	159.0	(223.9)	(64.9)
Deferred tax asset (2014: restated)			14.5			11.4
Net deficit			(61.2)			(53.5)

Summary

The focus for the management team remains on steady and continuous improvement in our day to day business processes and performance. We are working to support this activity with initiatives to improve our working capital management, including adding stock or resources to support business development activity. Separately, we aim to ensure that the legacy issues the Group faces are ring fenced as much as possible from the day to day operation of the business to ensure they are neither a distraction nor a hindrance. The improvements in our cost of debt and pension liability management represent a series of successful outcomes in delivering our strategic goal of strengthening our balance sheet.

Brian Tenner

Finance Director

 

Principal risks and uncertainties

Risk is inherent in our business activities. We take steps at both a Group and subsidiary level to understand and evaluate potential risks and uncertainties which could have a material impact on our performance in order to mitigate them. Accordingly, a risk aware environment is promoted and encouraged throughout the Group. Details of the principal risks and uncertainties are summarised below and set out in more detail in the Annual Report.

Business strategy

A strategy which does not match the Group's circumstances, capabilities or potential will fail to create shareholder value. The Group is developing a new strategy to deliver a turnaround in performance and to make that performance more stable and less exposed to revenue volatility. Unless successfully implemented, the Group will continue to experience volatile results and weak levels of cash generation. These are basic requirements to allow the delivery of sustainable and consistent growth in shareholder value.

 

Macro-economic and political risks

We operate in 18 countries and sell to customers in over 100 and therefore we are necessarily exposed to the economic, political and business risks associated with international operations such as a recession or the imposition of trade barriers. The continuing fragile macro-economic climate in the Eurozone and Australia is a specific source of risk.

Raw material price volatility

Increases in the cost of raw materials may not always be recoverable or have delays in recovery due to weakness in demand or competitor actions. If raw material costs fall, the Groupmay face customer pressure to reduce prices or experience a fall in demand. The Group mitigates against this risk through continuous monitoring of different international steel price indices to give early warning of negative trends. The Group is partiallyinsulated from movements in raw commodityprices because of intermediary processing steps in the supply chain. Where contractually possible, we pass on price increases.

Competitive markets and technological advancements

Renold operates in highly competitive markets with customer decisions based typically on quality, technology, service and price. New entrants or consolidation of existing competitors could restrict our ability to deliver our strategic objectives. We have a strategic objective to improve service and enhance customer relationships to deliver a more loyal customer base. We also invest in new technology and engineering capabilities.

Health and safety in the workplace

A lack of robust safety processes and procedures could result inaccidents involving Renold employees and others on Renold premises. Renold actively manages against these risks operating group wide health and safety policies contained within a documented management system, 'the Framework'. Healthand safety auditsand enhanced reporting have also been implemented atall sites and a new Group HSE Assurance Manager has been appointed.

Manufacturing disruption

The Group's profits and cash flows are dependent on the continued use of its various facilities. Operational risks include equipment failure, failure to comply with applicable regulations and standards, raw materials supply disruptions, labour force shortages, events impeding or increasing the cost of transporting the Group's products and natural disasters. Any disruption of the manufacturing processes can result in delivery delays, interrupt production or even lead to a full cessation of production. If production is interrupted, customers may decide to purchase products from other suppliers. The Group has insurance cover to mitigate the impact of a number of these risks.

ERP system implementation risks

The Group is presently implementing a global ERP system to replace numerous legacy systems. The risk continues that an unsuccessful implementation at an individual site could seriously impact the Group's business, financial condition, prospects, customer retention and results of operations. In any event, a temporary increase in operating costs is inevitable in any major change process. To mitigate this risk, the Group is making extensive use of external consultants, the implementation is taking place in phases and a thorough project plan is in place with agreed milestones reviewed by the Board.

Compliance risk - laws and regulations

Revision of legislation in various countries takes time and we monitor this at a local level in order to anticipate the effect on our businesses and customers. Renold communicate a clear compliance culture and training is issued to all employees.

A lack of technical expertise or management skills

The Group's international operations are dependent upon existing key executives and certain other employees in order to sustain and grow the business. To ensure this, the Group aims to attract, retain and motivate highly qualified and trained employees.

Liquidity

At times in the past, the conditions in the banking markets and Renold's own financial performance have made access to appropriate debt facilities difficultto achieve. In order to manage this risk, the Group maintains a mix of short and medium term facilities to ensure that it has sufficient funds available. Cash deposits are placed short term with banks where security and liquidity are the primary objectives.

Foreign exchange risk

The Group has operations in numerous countries and sells into many more with the result that two forms of currency risk, transactional and translational exposure, arise.

Ÿ Transactional exposure: a major exposure of the Group earnings and cash flows relates to currency risk on its sales and purchases made in foreign (non-functional) currencies. To reduce such risks, these transactions are covered primarily by forward foreign exchange contracts or cash flow hedges. Such commitments generally do not extend more than 12 months beyond the balance sheet date, although exceptions can occur where longer term projects are entered into.

Ÿ Translational exposure: arises due to exchange rate fluctuations in the translation of the results of overseas subsidiaries into Sterling. To manage foreign exchange currency risk on the translation of net investments, certain Dollar denominated borrowings taken out in the UK to finance US acquisitions have been designated as a hedge of the net investment in US subsidiaries.

Pensions

Estimates of the amount and timing of future funding obligations for the Group's pension plans are based upon a number of assumptions including future long term corporate bond yields, the actual and projected performance of the pension plan assets, legislative requirements and increased longevity of members. The Group continually reviews risks in relation to the Group's pension schemes and takes action to mitigate them where possible. While the Group is consulted by the trustees on the investment strategies of its pension plans, it does not have direct control over these matters, as trustees are responsible for the strategy.

Consolidated income statement for the year ended 31 March 2015

	Note		2015		2014
			£m		£m
Revenue	2		181.4		184.0
Operating costs before pension administration costs and exceptional items			(165.9)		(172.9)
Operating profit before pension administration costs and exceptional items			15.5		11.1
Pension administration costs			(0.5)		(0.6)
Exceptional items	3		(2.9)		(11.8)
Operating profit/(loss)			12.1		(1.3)
Financial costs			(1.7)		(1.8)
Net IAS 19 financing costs			(2.5)		(2.8)
Discount on provisions			(0.2)		-
Net financing costs	4		(4.4)		(4.6)
Profit/(loss) before tax			7.7		(5.9)
Taxation	5		(2.1)		(4.8)
Profit/(loss) for the financial year			5.6		(10.7)
Attributable to:
Owners of the parent			5.5		(10.9)
Non-controlling interests			0.1		0.2
			5.6		(10.7)
Earnings/(loss) per share	6
Basic earnings/(loss) per share			2.5p		(4.9)p
Diluted earnings/(loss) per share			2.5p		(4.9)p
Adjusted[3] earnings per share			5.0p		3.2p
Diluted adjusted earnings per share			5.0p		3.2p

 

Consolidated statement of comprehensive income for the year ended 31 March 2015

	2015 £m		2014 restated £m
Profit/(loss) for the year	5.6		(10.7)
Other comprehensive income/(expense):
Items that may be reclassified to profit or loss in subsequent periods:
Net (losses)/gains on cash flow hedges	(0.2)		0.2
Foreign exchange translation differences	4.6		(8.5)
Foreign exchange differences on loans hedging the net investment in foreign operations	(0.6)		0.6
	3.8		(7.7)
Items not reclassified to profit or loss in subsequent periods:
Remeasurement (losses)/gains on retirement benefit obligations	(15.1)		2.9
Tax on remeasurement losses/(gains) on retirement benefit obligations	3.4		(2.1)
	(11.7)		0.8
Other comprehensive expense for the year, net of tax	(7.9)		(6.9)
Total comprehensive expense for the year, net of tax	(2.3)		(17.6)
Attributable to:
Owners of the parent	(2.4)		(17.7)
Non-controlling interest	0.1		0.1
	(2.3)		(17.6)

 

Consolidated balance sheet as at 31 March 2015	Note	2015 £m			2014 restated £m
ASSETS Non-current assets
Goodwill			21.9		19.8
Other intangible assets			6.1		6.1
Property, plant and equipment			39.7		39.3
Investment property			-		1.3
Other non-current assets			-		0.2
Deferred tax assets			17.3		14.7
Retirement benefit surplus			0.2		0.4
			85.2		81.8
Current assets
Inventories			35.8		35.9
Trade and other receivables			30.6		29.7
Derivative financial instruments			-		0.1
Cash and cash equivalents			12.6		6.7
			79.0		72.4
Non-current asset classified as held for sale			1.4		1.6
			80.4		74.0
TOTAL ASSETS			165.6		155.8
LIABILITIES
Current liabilities
Borrowings			(0.7)		(0.1)
Trade and other payables			(36.6)		(34.9)
Current tax			(1.6)		(1.7)
Derivative financial instruments			(0.1)		-
Provisions			(2.1)		(2.4)
			(41.1)		(39.1)
NET CURRENT ASSETS			39.3		34.9
Non-current liabilities
Borrowings			(30.9)		(30.9)
Preference stock			(0.5)		(0.5)
Trade and other payables			(1.1)		(0.6)
Deferred tax liabilities			(0.2)		(0.2)
Retirement benefit obligations			(75.9)		(65.3)
Provisions			(4.3)		(5.3)
			(112.9)		(102.8)
TOTAL LIABILITIES			(154.0)		(141.9)
NET ASSETS			11.6		13.9
EQUITY
Issued share capital	7		26.6		26.6
Share premium account			29.9		29.9
Currency translation reserve			2.3		(1.7)
Other reserves			1.0		1.2
Retained earnings			(50.8)		(44.6)
Equity attributable to equity holders of the parent			9.0		11.4
Non-controlling interests			2.6		2.5
TOTAL SHAREHOLDERS' EQUITY			11.6		13.9

Approved by the Board on 26 May 2015 and signed on its behalf by:

Robert Purcell                         Brian Tenner

Chief Executive                           Finance Director
 

Consolidated statement of changes in equity for the year ended 31 March 2015

	Share capital £m	Share premium account £m	Retained earnings £m	Currency translation reserve £m	Other reserves £m	Attributable to owners of parent £m	Non- controlling interests £m	Total equity restated £m
At 1 April 2013	26.5	29.6	(34.8)	6.1	1.2	28.6	2.4	31.0
(Loss)/profit for the year	-	-	(10.9)	-	-	(10.9)	0.2	(10.7)
Other comprehensive income/(expense)	-	-	0.8	(7.8)	0.2	(6.8)	(0.1)	(6.9)
Total comprehensive income /(expense) for the year	-	-	(10.1)	(7.8)	0.2	(17.7)	0.1	(17.6)
Employee share options:
- value of employee services	-	-	0.1	-	-	0.1	-	0.1
Exercise of share warrants:
- release of share warrant reserve	-	-	0.2	-	(0.2)	-	-	-
- proceeds from share issue	0.1	0.3	-	-	-	0.4	-	0.4
At 31 March 2014 (restated)	26.6	29.9	(44.6)	(1.7)	1.2	11.4	2.5	13.9
Profit for the year	-	-	5.5	-	-	5.5	0.1	5.6
Other comprehensive income/(expense)	-	-	(11.7)	4.0	(0.2)	(7.9)	-	(7.9)
Total comprehensive income/(expense) for the year	-	-	(6.2)	4.0	(0.2)	(2.4)	0.1	(2.3)
Employee share options:
- value of employee services	-	-	0.2	-	-	0.2	-	0.2
- settled share option transactions	-	-	(0.2)	-	-	(0.2)	-	(0.2)
At 31 March 2015	26.6	29.9	(50.8)	2.3	1.0	9.0	2.6	11.6

 

Consolidated statement of cash flows for the year ended 31 March 2015

	2015 £m		2014 £m
Cash flows from operating activities (Note 8)
Cash generated from operations	14.2		7.0
Income taxes paid	(1.4)		(0.9)
Net cash from operating activities	12.8		6.1
Cash flows from investing activities
Purchase of property, plant and equipment	(3.8)		(6.0)
Purchase of intangible assets	(1.7)		(1.1)
Net cash from investing activities	(5.5)		(7.1)
Cash flows from financing activities
Proceeds from issue of ordinary shares	-		0.4
Financing costs paid	(1.4)		(1.5)
Proceeds from borrowings	1.0		8.0
Repayment of borrowings	(1.1)		(8.0)
Net cash from financing activities	(1.5)		(1.1)
Net increase/(decrease) in cash and cash equivalents	5.8		(2.1)
Net cash and cash equivalents at beginning of year	6.6		9.2
Effects of exchange rate changes	(0.2)		(0.5)
Net cash and cash equivalents at end of year	12.2		6.6

 

Notes to the Financial Information

1(a) Basis of preparation

The preliminary statement was approved by the Board on 26 May 2015. The preliminary statement does not represent the full consolidated financial statements of Renold plc and its subsidiaries which will be delivered to the Registrar of Companies following the Annual General Meeting. The audited consolidated financial statements of Renold plc for the year ended 31 March 2015 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The preliminary statement has been prepared on a consistent basis using the accounting policies set out in the Renold plc annual report for the year ended 31 March 2014. The financial information for the year ended 31 March 2014 has been extracted from the Renold plc annual report for that year as filed with the Registrar of Companies and restated for the impact of the change described below. The impact of this change is explained in detail below.

The 2014 and 2015 financial statements both carry unqualified audit reports which do not contain an emphasis of matter reference and do not contain a statement under section 237(2) or 237(3) of the Companies Act 1985 or section 498(2) or 498(3) of the Companies Act 2006.

Changes in accounting policies and disclosures

The Group has adopted all applicable amendments to standards with an effective date from 1 April 2014. Adoption of these standards did not have any material impact on financial performance or position of the Group.

Restatement of prior year financial statements:

Following a review of the tax base of the unfunded pension scheme in Germany, it was identified that the value of the tax base in relation to the pension deficit that had been used in calculating the deferred tax asset on the German pension deficit in 2014 was understated. The tax base had been assumed to be nil, whereas tax relief had been claimed in respect of the pension scheme, based on actuarial valuations, under German tax law.  In respect of pensions, a deferred tax asset represents the difference between the carrying amount of a pension deficit and its tax base.  As a result, the deferred tax asset recognised in the accounts in the prior year was over-stated by £4.2m. The prior year comparatives have been restated to correct for this error. The deferred tax asset in respect of the pension deficit was correctly calculated at 2013 and therefore no opening balance sheet at 1 April 2013 is presented.

The effect of this restatement has been to reduce, for the prior period, the closing recognised deferred tax asset by £4.2m. The tax credit shown in other comprehensive income in the consolidated statement of comprehensive income in the prior year has been reduced by the same amount. The restatement has no impact on the current or prior year income statement, cash flows or earnings per share.

The restatement has been made in accordance with IAS 8, 'Accounting Policies, Changes in Accounting Estimates and Errors'. The effect of the restatement to the financial statements including the related impact on taxation is summarised in the following table:

 

	2014 Reported £m	2014 Adjustment £m	2014 Restated £m
Consolidated statement of comprehensive income
- Tax credit on remeasurement (gains) / losses on retirement benefits obligations	2.1	(4.2)	(2.1)
- Other comprehensive expense for the year, net of tax	(2.7)	(4.2)	(6.9)
- Total comprehensive expense for the year net of tax	(13.4)	(4.2)	(17.6)
Balance Sheet
- Recognised deferred tax assets	18.9	(4.2)	14.7
- Total assets	160.0	(4.2)	155.8
- Net assets	18.1	(4.2)	13.9

1(b). Basis of preparation - Going Concern

The financial statements have been prepared on a going concern basis. In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

The Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of available borrowing facilities. The assessment included a detailed review of financial forecasts, financial instruments and hedging arrangements for at least the twelve month period from the date of signing the accounts and a review of cash flow projections. The Directors considered a range of potential scenarios within the key markets the Group serves and how these might impact on the Group's cash flow, facility headroom and banking covenants. The Directors also considered what mitigating actions the Group could take to limit any adverse consequences. The Group's forecasts and projections, taking account of reasonably possible scenarios show that the Group should be able to operate within the level of its borrowing facilities and covenants.

Having undertaken this work, the Directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the Annual Report and accounts.

1(c). Responsibility Statement of the Directors in respect of the Annual Report and Accounts

We confirm that to the best of our knowledge:

· the accounts, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

· the directors' report includes a fair review of the development and performance of the business and the position of the issuer and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

2.     Segmental information

For management purposes, the Group is organised into two reportable operating segments according to the nature of their products and services. Having considered the management reporting and organisational structure of the Group, the Directors have concluded that Renold plc has two reportable operating segments as follows:

·      The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of Torque Transmission product through Chain National Sales Companies (NSCs);

·      The Torque Transmission segment manufactures and sells torque transmission products such as gearboxes and couplings used in power transmission.

No operating segments have been aggregated to form the above reportable segments.

Management monitors the operating results of its business units separately for the purpose of making decisionsabout resource allocation and performance assessment. The Chief Operating Decision Maker (CODM) for the purposes of IFRS 8: 'Operating Segments' is considered to be the Board of Directors of Renold plc.  Segment performance is evaluated based on operating profit and loss and is measured consistently with operating profit and loss in the consolidated financial statements. However, Group financing (including finance costs and finance income), retirement benefit obligations and income taxes are managed on a Group basis and are not allocated to operating segments.

Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.

Year ended 31 March 2015	Chain £m	Torque Transmission £m	Head Office costs and eliminations £m	Consolidated £m
Revenue
External customer	138.3	43.1	-	181.4
Inter-segment	-	4.6	(4.6)	-
Total revenue	138.3	47.7	(4.6)	181.4
Operating profit/(loss) before pension administration costs and exceptional items	14.2	6.9	(5.6)	15.5
Pension administration costs	-	-	(0.5)	(0.5)
Exceptional items	(2.1)	(0.2)	(0.6)	(2.9)
Operating profit/(loss)	12.1	6.7	(6.7)	12.1
Net financing costs				(4.4)
Profit before tax				7.7
Other disclosures
Working capital	22.3	9.3	(3.0)	28.6
Capital expenditure	4.4	0.9	1.3	6.6
Depreciation and amortisation	3.0	1.1	1.2	5.3

Year ended 31 March 2014	Chain £m	Torque Transmission £m	Head Office costs and eliminations £m	Consolidated £m
Revenue
External customer	139.6	44.4	-	184.0
Inter-segment	0.3	5.0	(5.3)	-
Total revenue	139.9	49.4	(5.3)	184.0
Operating profit/(loss) before pension administration costs and exceptional items	9.9	5.8	(4.6)	11.1
Pension administration costs	-	-	(0.6)	(0.6)
Exceptional items	(11.5)	(0.3)	-	(11.8)
Operating profit/(loss)	(1.6)	5.5	(5.2)	(1.3)
Net financing costs				(4.6)
Loss before tax				(5.9)
Other disclosures
Working capital	22.6	8.6	(1.1)	30.1
Capital expenditure	4.8	1.3	1.0	7.1
Depreciation and amortisation	3.1	1.1	1.2	5.4

The Board reviews the performance of the business using information presented at consistent exchange rates ('underlying'). The prior year results have been restated using this year's exchange rates as follows:
 

Year ended 31 March 2014	Chain £m	Torque Transmission £m	Head Office costs and eliminations £m	Consolidated £m
Revenue
External customer	139.6	44.4	-	184.0
Foreign exchange	(5.3)	(0.8)	-	(6.1)
Underlying external sales	134.3	43.6	-	177.9
Operating profit/(loss) before pension administration costs and exceptional items	9.9	5.8	(4.6)	11.1
Foreign exchange	(0.6)	-	-	(0.6)
Underlying operating profit/(loss) before pension administration costs and exceptional items	9.3	5.8	(4.6)	10.5

i.     Inter-segment revenues are eliminated on consolidation.

ii.    Included in Chain external sales is £7.2m (2014: £7.6m) of Torque Transmission product sold through the Chain NSCs. The Torque Transmission businesses may use the Chain NSC framework in countries where it does not have its own presence.

iii.   The measures of segment assets reviewed by the CODM is total working capital, defined as inventories and trade and other receivables less trade and other payables. Working capital is also measured as a ratio of rolling annual sales.

iv.   Capital expenditure consists of additions to property, plant and equipment, and intangible assets (including through acquisitions).

The UK is the home country of the parent company, Renold plc.  The principal operating territories and sales analysis is shown below (based on the location of the customer).  The analysis of non-current assets is based on the location of the assets as follows:

	Revenue ratio		External revenues		Non-current assets		Employee numbers
	2015 %	2014 %	2015 £m	2014 £m	2015 £m	2014 £m	2015	2014
United Kingdom	9.3	8.7	16.9	16.0	12.7	13.8	372	558
Rest of Europe	27.8	27.7	50.5	51.0	10.8	12.8	503	405
North America	36.8	37.8	66.7	69.5	28.3	24.8	351	355
Australasia	11.5	12.0	20.8	22.0	6.6	7.0	152	157
China	3.8	4.1	6.8	7.5	3.5	3.5	350	348
India	3.9	3.4	7.1	6.2	4.9	3.8	481	479
Other countries	6.9	6.3	12.6	11.8	0.9	0.8	68	77
	100	100	181.4	184.0	67.7	66.5	2,277	2,379

All revenue relates to the sale of goods and services. No individual customer, or group of customers, represents more than 10% of Group revenue (2014: none).

Non-current assets consist of goodwill, other intangible assets, property, plant and equipment, investment property and investment in jointly controlled entities. Other non-current assets and deferred tax assets are not included above.

3.         Exceptional items

Included in operating costs	2015 £m		2014 £m
Bredbury factory closure costs	0.2		4.7
Bredbury site onerous lease provision	-		5.7
Increase in onerous lease provision due to change in discount rate	0.5		-
Chain business model review:
- impairment of property, plant and equipment	-		0.1
- impairment of inventory and production tooling	-		0.5
Impairment of investment property	1.2		-
Impairment of software licences	0.2		-
Other reorganisation and redundancy costs	0.8		0.8
	2.9		11.8

The current year saw £0.2m of residual costs incurred in relation to the completion of the Bredbury closure project such as additional redundancy costs and lease termination costs. Even with these extra costs the project was still completed ahead of it's estimated cost. In the prior year, closure costs of £4.7m and an onerous lease provision of £5.7m were recognised in that period. The Bredbury site onerous lease provision was increased by £0.5m due to a change in the discount rate used to discount the future payment obligations.

Also in the current year, an impairment charge of £1.2m was made in relation to an investment property located in Calais, France, writing down the value of the property to a net book value of nil. This decision reflects ongoing weakness in the general economy and property market in particular in that region of France and therefore we have concluded the property has no material value. Any alternate use specified by local planning regulations may also impact any net realisable value.

The impairment of software licences reflects the decision to change the Group's planned global ERP system and consequently not to make use of previously acquired licences. As a result, future periods will include approximately £0.2m accelerated amortisation for 4-5 years to reflect the shorter assumed useful economic life. Other restructuring and redundancy costs include costs associated with the agreed re-location of our headquarters in Manchester and ongoing restructuring of our senior management teams.

4.       Net financing costs

	2015 £m			2014 £m
Financial costs:
Interest payable on bank loans and overdrafts	(1.4)			(1.5)
Amortised financing costs	(0.3)			(0.3)
Total financing costs	(1.7)			(1.8)
Net IAS 19 financing costs	(2.5)			(2.8)
Discount unwind on provisions	(0.2)			-
Net financing costs		(4.4)			(4.6)

5.      Taxation

          Analysis of tax charge/(credit) in the year

	2015 £m		2014 £m
United Kingdom
UK corporation tax at 21% (2014: 23%)	-		-
Less: double taxation relief	-		-
	-		-
Overseas taxes
Corporation taxes	1.3		1.0
Withholding taxes	0.1		0.2
Current income tax charge	1.4		1.2
Deferred tax
UK - origination and reversal of temporary differences	(0.3)		3.0
Overseas - origination and reversal of temporary differences	1.0		0.6
Total deferred tax charge	0.7		3.6
Tax charge on profit/(loss) on ordinary activities	2.1		4.8

	2015 £m		2014 restated £m
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits	3.4		(2.1)
Tax credit/(charge) in the statement of other comprehensive income	3.4		(2.1)

Factors affecting the Group tax charge for the year

The UK Finance Act 2013 reduced the main rate of UK corporation tax from 23% to 21% from 1 April 2014 and then 20% from 1 April 2015. The effect of these reductions has been incorporated into the closing deferred tax balances in the financial statements.

The Group's tax charge in future years will be affected by the profit mix, effective tax rates in the different countries where the Group operates and utilisation of tax losses. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries.

The actual tax on the Group's loss before tax differs from the theoretical amount using the UK corporation tax rate as follows:

	2015		2014
	£m		£m
Profit/(loss) on ordinary activities before tax	7.7		(5.9)
Theoretical tax charge/(credit) at 21% (2014: 23%)	1.6		(1.4)
Effects of:
Permanent differences	0.8		0.2
Overseas tax rate differences	0.8		0.4
Deferred tax (utilised)/not recognised	(1.1)		5.2
Change in tax rate	-		0.4
Total tax charge	2.1		4.8

6.       Earnings/(loss) per share

Earnings/(loss) per share (EPS) is calculated by reference to the earnings/(loss) for the year and the weighted average number of shares in issue during the year as follows:

	2015				2014
		Profit £m	Shares (Thousands)	Per share amount (pence)	Loss £m	Shares (Thousands)	Per share amount (pence)
Basic EPS
(Loss) / earnings attributed to ordinary shareholders		5.5	223,065	2.5	(10.9)	222,398	(4.9)
Basic EPS		5.5	223,065	2.5	(10.9)	222,398	(4.9)

	2015						2014
	(Loss) / earnings £m		Shares (Thousands)		Per share amount (pence)		(Loss) / Earnings £m		Shares (Thousands)		Per share amount (pence)
Adjusted EPS
Basic EPS	5.5		223,065	2.5			(10.9)		222,398		(4.9)
Effect of exceptional items, after tax:
Exceptional items in operating costs		2.9		1.3		11.4					5.1
Exceptional tax charge		-		-		3.5					1.6
Pension administration costs included in operating costs		0.5		0.2		0.6					0.3
Discount unwind on exceptional items		0.2		0.1		-					-
Net pension financing costs		2.1		0.9		2.4					1.1
Adjusted EPS		11.2	223,065	5.0		7.0			222,398		3.2

Inclusion of the dilutive securities, comprising 2,489,000 (2014: 1,620,000 restated) additional shares due to share options in the calculation of basic and adjusted EPS does not change the amounts shown above (2014: no change).

The adjusted earnings per share numbers have been provided in order to give a useful indication of underlying performance by the exclusion of exceptional items. Due to the existence of unrecognised deferred tax assets, there was no associated tax credit on some of the exceptional charges and in these instances exceptional costs are added back in full.

7.      Called up share capital		Issued
		2015 £m		2014 £m
Ordinary shares of 5p each		11.2		11.2
Deferred shares of 20p each		15.4		15.4
		26.6		26.6

At 31 March 2015, the issued ordinary share capital comprised 223,064,703 ordinary shares of 5p each (2014: 223,064,703) and 77,064,703 deferred shares of 20p each (2014: 77,064,703).

8.      Additional cash flow information

Reconciliation of operating profit to net cash flows from operations: Cash generated from operations:	2015 £m		2014 £m
Operating profit/(loss)	12.1		(1.3)
Depreciation and amortisation	5.3		5.4
Impairment of intangible assets	0.2		-
Impairment of investment property	1.2		-
Proceeds from plant and equipment disposals	-		0.2
Equity share plans	-		0.1
Decrease in inventories	0.7		1.8
(Increase)/decrease in receivables	(0.2)		0.8
Increase/(decrease) in payables	0.9		(1.8)
(Decrease)/increase in provisions	(1.5)		5.8
Movement on pension plans	(4.4)		(3.8)
Movement in derivative financial instruments	(0.1)		(0.2)
Cash generated from operations	14.2		7.0

Reconciliation of net decrease in cash and cash equivalents to movement in net debt:		2015 £m				2014 £m
Increase/(decrease) in cash and cash equivalents		5.8				(2.1)
Change in net debt resulting from cash flows		0.1				-
Foreign currency translation differences		(0.3)				0.4
Non-cash movement (amortisation of re-financing costs)		(0.3)				(0.3)
Change in net debt during the period		5.3				(2.0)
Net debt at start of year		(24.8)				(22.8)
Net debt at end of year		(19.5)				(24.8)
Net debt comprises:
Cash and cash equivalents		12.6				6.7
Total borrowings		(32.1)				(31.5)
		(19.5)				(24.8)

9. Post balance sheet events

Amendment and Extension of the Group's Core Banking Facility

On 13 May 2015 the Group agreed a revision to its existing banking facilities with its current banking partners, Svenska Handelsbanken AB and Lloyds Bank plc. The new facility replicates the previous  £41m MRCF but also adds a £20m accordion feature that can be triggered by the Group to fund investment or acquisition opportunities. The revised facility has been extended to mature in May 2020 whereas the original maturity was in October 2016. The new facility is also priced at current market rates and will lead to a reduction in average annual interest expense of approximately £0.3m on current debt levels. The main covenants and security granted to the banks and other terms remain largely unchanged.

UK Pensions De-risking Project

After the end of the financial year the Group completed a medically underwritten insured buy-in of approximately £25m of higher risk current pensioner liabilities representing approximately 25% of current pensioner liabilities. The population in question is described as high risk because it includes members with higher annual pensions and therefore a concentration of longevity risk. The UK pension scheme is the beneficiary of the insurance contract purchased which creates matching cash flows for the pensions secured. The transaction will have no impact on the Group's accounting balance sheet but the price achieved was at a discount to the funding assumption which will be relevant to future funding discussions with trustees.

The key benefit of the transaction was the full de-risking achieved in respect of a significant proportion of current pensioner liabilities.

 

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[1] Underlying adjusts prior year results to the current year exchange rates to give a like for like comparison.

[2] "Adjusted" means excluding the impact of exceptional items and pension administration costs.

[3] Adjusted for the after tax effects of pension administration costs, exceptional items, changes in discounts on exceptional provisions and the IAS 19 charge.

 

END

 

 

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